Australian Securities and Investments Commission v Dunner

[2013] FCA 872

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Dunner [2013] FCA 872

Citation:		Australian Securities and Investments Commission v Dunner [2013] FCA 872
Parties:		AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ANDREW LEONARD DUNNER
File number(s):		VID 327 of 2012
Judge(s):		MIDDLETON J
Date of judgment:		30 August 2013
Catchwords:		CORPORATIONS – Corporations Act 2001 (Cth), ss 423, 499, 536 – Duties of liquidator – Duties of receiver – Court inquiry into defendant’s conduct as liquidator and receiver – Failure by defendant to investigate circumstances of companies to which he was appointed – Drawing remuneration without approval or adequate supporting documentation – Inaccurate reporting to ASIC and creditors regarding external administrations – Repayment of remuneration drawn without approval – Unfitness to remain registered as liquidator – Duration of prohibition order
Legislation:		Companies Act 1961 (Vic) Corporations Act 2001 (Cth) Corporations Regulations 2001 (Cth)
Cases cited:		Ah Toy v Registrar of Companies (1986) 10 FCR 356 ASIC v Edge (2007) 211 FLR 137; [2007] VSC 170 ASIC v Lanepoint Enterprises Pty Ltd [2006] FCA 1493 BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558 Commissioner forCorporate Affairs (Vic) v Harvey [1980] VR 669 Fraser v ASIC (2007) 159 FCR 424 Hall v Poolman (2009) 75 NSWLR 99 Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd & Ors (1989) 19 NSWLR 434 Pace v Antlers Pty Ltd (in liquidation) (1998) 80 FCR 485
Date of hearing:	11 and 12 February 2013
Date of last submissions:	17 April 2013
Place:	Melbourne
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	246
Counsel for the Plaintiff:	Mr EW Woodward SC with Mr CM Archibald
Solicitor for the Plaintiff:	Australian Securities and Investments Commission
Counsel for the Defendant:	Mr N Jones
Solicitor for the Defendant:	Lou Costellano

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 327 of 2012

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND:	ANDREW LEONARD DUNNER Defendant

JUDGE:	MIDDLETON J
DATE OF ORDER:	30 AUGUST 2013
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The parties confer, and file a minute of order reflecting these reasons by 4:00 pm on 20 September 2013.

2.If agreement cannot be reached, then each party file and serve a separate minute of order by 4:00 pm on 20 September 2013.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 327 of 2012

BETWEEN:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff
AND:	ANDREW LEONARD DUNNER Defendant

JUDGE:	MIDDLETON J
DATE:	30 AUGUST 2013
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

1. This proceeding is an inquiry into the conduct of a receiver and manager and liquidator under ss 423 and 536 of the Corporations Act 2001 (Cth) (‘the Act’), carried out pursuant to orders made by consent. The proceeding was originally commenced by originating process filed by the plaintiff (‘ASIC’) on 26 April 2012 (as subsequently amended).

2. The inquiry concerns the conduct of the defendant, Mr Dunner, as liquidator and controller of 12 companies:

   1.Polymertechnik Pty Ltd (deregistered) ACN 122 433 550;

   2.Polymertechnik Foam Pty Ltd (deregistered) ACN 122 433 587;

   3.Regen Polymers Pty Ltd (deregistered) ACN 128 884 266;

   4.Barra Trans Pty Ltd (deregistered) ACN 109 201 587;

   5.Bartech International Pty Ltd (deregistered) ACN 086 553 586;

   6.Red Earth Facade Systems Pty Ltd (in liquidation) ACN 094 326 753;

   7.Rayunit Pty Ltd (in liquidation) ACN 062 998 378;

   8.Emberford Pty Ltd (in liquidation) ACN 007 394 881;

   9.Blacktop Profiling Pty Ltd (in liquidation) ACN 101 679 047;

   10.R.A.M. Investments (Vic) Pty Ltd (in liquidation) ACN 104 797 784;

   11.Environmental Polymer Holdings Pty Ltd (deregistered) ACN 122 431 832; and

   12.EPFE Pty Ltd (deregistered) ACN 122 433 694.

3. The full inquiry (including as to the appropriate orders) was conducted in one hearing before me pursuant to the agreement of both parties. 

4. It is convenient to commence by setting out, by way of background, the legal principles to be applied in inquiries into the conduct of liquidators and controllers.

   APPLICABLE LEGAL PRINCIPLES

   Inquiries under ss 423 and 536

5. Sections 423 and 536 empower the Court to inquire into the conduct of a controller or liquidator (respectively) in connection with the performance of their duties, functions and powers, and to take such action as it thinks fit.

6. Section 423 of the Act provides:

   (1)      If:

   (a)it appears to the Court or to ASIC that a controller of property of a corporation has not faithfully performed, or is not faithfully performing, the controller’s functions or has not observed, or is not observing, a requirement of:

   (i)in the case of a receiver – the order by which, or the instrument under which, the receiver was appointed; or

   (ii)otherwise – an instrument under which the controller entered into possession, or took control, of that property; or

   (iii)in any case – the Court; or

   (iv)in any case – this Act, the regulations or the rules; or

   (b)a person complains to the Court or to ASIC about an act or omission of a controller of property of a corporation in connection with performing or exercising any of the controller’s functions and powers;

   the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.

   (2)ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of a controller of property of a corporation and the Court may order the controller to make good any loss that the estate of the corporation has sustained thereby and may make such other order or orders as it thinks fit.

   (3)The Court may at any time:

   (a)require a controller of property of a corporation to answer questions about the performance or exercise of any of the controller’s functions and powers as controller; or

   (b)examine a person about the performance or exercise by such a controller of any of the controller’s functions and powers as controller; or

   (c)direct an investigation to be made of such a controller’s books.

7. Section 536 of the Act provides:

   (1A)     In this section:  liquidator includes a provisional liquidator.

   (1)      Where:

   (a)it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:

   (i)a requirement of the Court; or

   (ii)a requirement of this Act, of the regulations or of the rules; or

   (b)a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;

   the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.

   (2)ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit.

   (3)The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning the winding up and may direct an investigation to be made of the books of the liquidator.

   The nature of the inquiry

8. Section 536 is concerned with aspects of the conduct of liquidators that are likely to attract sanctions for what might broadly be described as disciplinary reasons (Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd & Ors (1989) 19 NSWLR 434, dealing with the predecessor provision to s 536, being s 420 of the Companies (New South Wales) Code). Section 423 is a similar provision concerned with the conduct of controllers (which term is defined by the Act to include a receiver, a receiver and manager, and anyone else who is in possession or has control of property of a corporation for the purpose of enforcing a security interest). In Re S & D International Pty Ltd (in liquidation) (receivers and managers appointed) [2009] VSC 225 at [210], Robson J held that the two provisions are “virtually identical”. The case law regarding s 536 may therefore be taken as applying to s 423.

9. I note that in his judgment in BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558 at 567 and following, Barrett J provided a useful summary of the purpose of s 536 by reference to a number of key authorities.

10. By way of overview, it was said by the NSW Supreme Court of Appeal in Hall v Poolman (2009) 75 NSWLR 99 that s 536 “is a broadly expressed supervisory jurisdiction over the conduct of persons in control of the affairs of a corporation, in circumstances where normal market forces and the exercise by shareholders of their rights to control are attenuated or non-existent” (at 119 [53]). Therefore, the power conferred by the section is not to be narrowly construed or confined by fine distinctions (Hall v Poolman (2009) at 119 [54]).

11. Prior to these cases, in the context of discussing s 278 of the Companies Act 1961 (Vic) (a predecessor provision of s 536), Marks J in Commissioner forCorporate Affairs (Vic) v Harvey [1980] VR 669 said (at 688):

    It is clear that the inquiry is not confined to matters raised in the report or in an affidavit supportive of an application.  I think that where other aspects of the liquidator’s conduct emerge in the course of an inquiry then any embarrassment to him can be met in the usual way by permitting any necessary adjournments and giving of directions.

12. His Honour also said (at 670):

    It follows that once the court is apprised of any matter bearing on the conduct of a liquidator it has jurisdiction to inquire into that conduct and the ambit of the inquiry is for the Court to determine. That ambit may well include, if the Court considers it prudent to do so, inquiry into other liquidations, current or complete, with which the liquidator is or has been concerned.

13. This case was cited with approval by the Full Federal Court in Ah Toy v Registrar of Companies (1986) 10 FCR 356 at 358, and by Dodds-Streeton J in ASIC v Edge (2007) 211 FLR 137; [2007] VSC 170 at 156-158 [70]-[77].

14. As Barrett J noted in BL (2010) 79 ACSR 558 at 569 [42] and following, proceedings conducted pursuant to s 536 normally involve three stages. The first stage involves the court deciding, upon an application being made, whether an inquiry into a liquidator’s conduct is warranted. If found to be warranted, an inquiry is ordered to take place. The task of the court at the second stage is to make a judgment about the liquidator’s conduct, “viewed in the light of the whole of the requirements applying to liquidators and taking account, of necessity, of the circumstances of the particular winding-up” (at 570 [44]). This inquiry is structured so as to be adversarial in nature, with the liquidator “enjoying all the usual safeguards and protections” (BL (2010) 79 ACSR 558 at 569 [43]).

15. If, as a result of the inquiry, the court decides the liquidator’s conduct is deficient in some way, the third stage under s 536 is to decide whether to make an order in respect of that conduct (BL (2010) 79 ACSR 558 at 570 [45]).

16. As I have already mentioned, by agreement of the parties this normal three stage process was undertaken at the one hearing.

17. Pursuant to both ss 423 and 536, the court may “take such action as it thinks fit”. This power has been held to extend to orders cancelling a liquidator’s registration (and providing that a liquidator may not reapply for such registration for a specified period of time), and orders for compensation (Edge (2007) 211 FLR 137; [2007] VSC 170 at 160 [88] and 227 [613]). In that case, Dodds-Streeton J also opined that in appropriate circumstances, an order could be made for review of a liquidator’s remuneration (even where there was a valid resolution approving the remuneration), although her Honour noted that such power should be exercised having regard to the supervisory purpose of s 536 (at 222 [568]). Her Honour ultimately determined that where remuneration is drawn by a liquidator without valid approval, the court may make orders for payment of the remuneration into court. The liquidator may then apply to the court for approval of remuneration (at 229 [623]). This aspect of her Honour’s judgment will be discussed further in due course.

    Obligations and duties of liquidators and controllers

    The role of the liquidator

18. As noted by Dodds-Streeton J in Edge (2007) 211 FLR 137; [2007] VSC 170 at 151 [40]-[42], the role of a liquidator of a company essentially involves:

    (a)identifying, taking possession of and realising the company’s assets;

    (b)investigating and determining claims against the company; and

    (c)applying the assets to the satisfaction of those claims in accordance with the legislative scheme.

19. In Re Contract Corporation (Gooch’s Case) (1871) LR 7 Ch App 207, James LJ provided a broad summary of the role of a liquidator at 211:

    In truth, it is of the utmost importance that the liquidator should, as the officer of the Court, maintain an even and impartial hand between all the individuals whose interests are involved in the winding-up…  It is his duty to the whole body of shareholders, and to the whole body of creditors, and the Court, to make himself thoroughly acquainted with the affairs of the company; and to suppress nothing, and to conceal nothing, which has come to his knowledge in the course of his investigation, which is material to ascertain the exact truth in every case before the Court.

20. Justice Street (in Equity) stated in Re Allebart Pty Ltd (in liquidation) [1971] 1 NSWLR 24 (at 26-27) that:

    [w]hen it is ordered that a company be wound up on the ground of inability to pay debts, the Court appoints an official liquidator to take administrative control of the company's affairs and to investigate the past history of the company itself and those associated with it. A court winding up involves more than a mere realization of the assets and distribution of proceeds. The official liquidator is an officer of the Court, and as such he has public responsibilities to investigate past activities connected with the company, and, in appropriate cases, to initiate such further proceedings, civil or criminal, connected therewith as the circumstances may dictate. It is his duty to discover not only breaches of the Companies Act, but also conduct falling short of the requisite standards of commercial morality. In every instance the winding up of an insolvent company pursuant to an order of the Court is attended with these obligations resting upon the official liquidator. The due course of such a winding up involves his taking such steps in relation thereto as are necessary to discharge the duties and obligations resting upon him.

21. Also in Re Allebart Pty Ltd [1971] 1 NSWLR 24, Street J said (at 26):

    A court winding up involves more than a mere realization of the assets and distribution of proceeds.  The official liquidator is an officer of the Court, and as such he has public responsibilities to investigate past activities connected with the company, and, in appropriate cases, to initiate such further proceedings, civil or criminal, connected therewith as the circumstances may dictate.  It is his duty to discover not only breaches of the Companies Act, but also conduct falling short of the requisite standards of commercial morality.

22. In Edge (2007) 211 FLR 137; [2007] VSC 170 at 151 [44], Dodds-Streeton J said:

    The extensive powers vested exclusively in the liquidator entail a corresponding vulnerability in the creditors, members and the public. The liquidator is a fiduciary on whom high standards of honesty, impartiality and probity are imposed both by the Act and the general law. As an officer of the company, the liquidator has a statutory duty of care, diligence and good faith.

23. In terms of specific functions of a liquidator that are particularly relevant in this proceeding, I note that a liquidator receives the report as to the company’s affairs (‘RATA’) made out and verified by the directors and the secretary pursuant to s 475(1), and may require an additional report or information under s 475(2) or (3).

    The role of a receiver or receiver and manager of company property

24. A receiver or receiver and manager’s primary concern is to gather in, manage and realise the assets charged, with a view to liquidating the secured creditor’s debt (Fraser v ASIC (2007) 159 FCR 424 at 435 [36]). For the purposes of the following discussion, I shall refer collectively to receivers and receivers and managers simply as ‘receivers’, unless the context otherwise requires.

25. The primary duty of a receiver is to the mortgagee or chargee under the mortgage or charge in respect of which they were appointed (ASIC v Lanepoint Enterprises Pty Ltd [2006] FCA 1493 at [39]; see also Fraser (2007) 159 FCR 424 at 262 [36]).

26. Undoubtedly, it is a receiver’s responsibility to ensure that they have been validly appointed, and to be fully aware of the powers conferred upon them, and of the nature and extent of the property over which they have been appointed.

    General duties and powers of insolvency practitioners

27. Insolvency practitioners are subject to standards imposed by:

    (a)Pt 2D.1 of the Act (as officers of a corporation, because administrators, liquidators and receivers are all included in the definition of “officer” in s 9 of the Act);

    (b)equitable principles applicable to fiduciaries, including a duty to avoid conflicts of interest; and

    (c)industry codes.

28. As officers, liquidators and receivers are subject to the same statutory duty of care and diligence as directors under s 180 of the Act.

29. Specifically in relation to liquidators, I note that a liquidator is appointed and paid to exercise a particular professional skill, and a high standard of care and diligence is required in the performance of their duties (Pace v Antlers Pty Ltd (in liquidation) (1998) 80 FCR 485 at 497).

30. In Pace (1998) 80 FCR 486 at 499, Lindgren J stated that a liquidator:

    must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances.  ‘All the circumstances’ will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator’s role and function, and that a liquidator is paid for liquidation work.  ‘All the circumstances’ will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators acting with due care, but always without the benefit of hindsight, may have differences of opinion.

31. Both the Institute of Chartered Accountants in Australia (‘ICAA’) and the Insolvency Practitioners Association of Australia (‘IPA’) have published standards of conduct for insolvency practitioners.  Specifically, the codes relied upon by ASIC in this proceeding (collectively referred to as ‘Codes’) are:

    1.Professional standard ‘APES 330 Insolvency Services’ issued by the Accounting Professional and Ethical Standards Board of the ICAA (‘APES 330’);

    2.‘Code of Professional Practice for Insolvency Practitioners’ issued by the IPA, most of which was operative between 31 December 2007 and 31 December 2010 (‘2008 IPA Code’); and

    3.‘Code of Professional Practice for Insolvency Practitioners’ (2^nd ed) issued by the IPA, operative from 1 January 2011 (‘2011 IPA Code’).

1. In Re Monarch Gold Mining Co Ltd; Ex parte Hughes (2008) WASC 201 at [37]-[40], Sanderson M stated (in the context of considering the ‘Code of Practice for Insolvency Practitioners’, which I note is not one of the Codes specifically in contemplation in this proceeding):

   37 A code of conduct such as this has no legal status. That is to say, a failure to comply with the terms of the code would not render a practitioner liable for prosecution under the Corporations Act or any other statute. It may lead to disciplinary proceedings by the Insolvency Practitioners Assn but that is a different issue...

   38       But the importance of codes such as this is not to be underestimated. Administrators and insolvency practitioners generally are said to act under the supervision of the court. That is right; but the court’s ability to supervise an insolvency practitioner is, in a very real and practical sense, limited.  In this day and age, insolvency practice is highly specialised and administrations or liquidations are frequently extremely complex.  While it is doubtless comforting to stakeholders that courts have a supervisory role, comfort can also be drawn from the fact that ASIC play a role and that insolvency practitioners are adhering to a detailed code of conduct. This case provides a good example of the importance of the role of ASIC and the importance of the code of conduct...

   40       It is also important that the administrators paid close attention to their obligations under the code of practice. It shows that the code is something more than a public relations exercise designed to assuage the concerns of those involved with insolvency practitioners. That being so, it seems to me that it is appropriate to make the directions sought. It emphasises the importance to be attached to adherence to the code.  It must necessarily add to the status of the code and assure the public generally that the courts regard adherence to its terms as a matter of utmost importance.

   Approval for remuneration

2. Section 473(3) of the Act (“General provisions about liquidators”) provides that a liquidator is entitled to receive such remuneration as is determined by resolution of the creditors or by the Court, or by agreement between the liquidator and the committee of inspection.

3. Section 14.3 of the 2008 IPA Code (“Remuneration drawn inappropriately”) states that:

   [i]f a Practitioner becomes aware that fees have been improperly taken, because, for example, the correct process has not been followed, the Practitioner must immediately repay the amount in question into the administration account.  Remuneration may then only be redrawn on approval being obtained.

   (Emphasis in original)

4. The corresponding provision in the 2011 IPA Code, s 16.3, states that:

   [i]f a Practitioner becomes aware that fees have been improperly taken, because, for example, the correct process has not been followed, the Practitioner must immediately repay the amount in question into the administration account.  Remuneration may then only be redrawn on approval being obtained and an explanation as to why the fees were improperly taken must be provided to creditors at that time.  Fees and expenses incurred in rectifying inappropriately drawn fees must be borne by the Practitioner.

5. Paragraph 8.13 of APES 330 states that:

   [a] Member in Public Practice shall only draw Professional Fees once the proper resolution, order, or authority has been obtained from the Approving Body and in accordance with the terms of approval.

6. Section 12.5 of the 2008 IPA Code (“What remuneration cannot be charged for”) states:

   A Practitioner must not seek to be remunerated for work:

   •         outside the scope of the powers of the Practitioner; or

   •         carried out before the Practitioner was appointed.

   These restrictions are a threshold test before applying the ‘necessary and properly performed’ test.

   (Emphasis in original)

7. The 2008 IPA Code goes on to state in s 12.5.1 (“Court approval”) that:

   Although remuneration must not be claimed for work done before the Practitioner was appointed, there may be circumstances where the pre-appointment work was necessary for the administration and would have had to be done in any event.  The Practitioner must seek court approval for any such claim.  It is not sufficient in itself to obtain approval from a committee or from the creditors.  While a court will generally require creditor’s approval for remuneration to be sought first, claims for remuneration in these circumstances require court approval.

   (Emphasis in original)

8. The equivalent provision in the 2011 IPA Code is section 14.5.

9. These Codes apply either according to their terms or in substance to the activities of Mr Dunner.  In many respects, both in relation to remuneration and other activities, the Codes expressly state obligations which were otherwise imposed upon Mr Dunner under the law.  Without reference to the Codes, I would have come to the same conclusions in relation to Mr Dunner as I have later reached in these reasons.

   Maintaining records of the administration

10. Section 531 of the Act (“Books to be kept by liquidator”) provides:

    A liquidator or provisional liquidator must keep proper books in which he or she must cause to be made entries or minutes of proceedings at meetings and of such other matters as are prescribed, and any creditor or contributory may, unless the Court otherwise orders, personally or by an agent inspect them.

11. Regulation 5.6.01 of the Corporations Regulations 2001 (Cth) (‘Regulations’) (“Matters for entry in liquidator’s or provisional liquidator’s books”) provides:

    For section 531 of the Act, the prescribed matters are those that are required to give a complete and correct record of the liquidator’s or provisional liquidator’s administration of the company’s affairs.

    MR DUNNER’S BACKGROUND

12. At the time of the hearing, Mr Dunner had been practising in insolvency for at least 26 years.  ASIC records disclose that he was first registered as a liquidator on 10 February 1986.  Mr Dunner was registered as an official liquidator on 21 August 1992.  He became a member of the ICAA on 9 August 1977, and is a member of the IPA.

13. At the time of hearing, Mr Dunner had been in sole practice since 1993 as the proprietor of the firm “Andrew Dunner & Associates”.  In this capacity he had two primary staff to assist him: an accountant (Mr Stephen Burns) and another person not qualified as an accountant (Mr Matthew Giliberto).  He has also received occasional assistance from ‘consultants’ including a chartered accountant (Mr Bruce Simmons).  He has no administrative support staff – in the hearing before me, Mr Dunner gave evidence that in his practice, “[e]veryone does their own computer entries.”

    SUMMARY OF ASIC’S ALLEGATIONS

14. ASIC complains about the performance by Mr Dunner of his duties and exercise of his powers as liquidator and controller of the companies that are the subject of this inquiry. 

15. Among other things, ASIC alleges that Mr Dunner has failed to investigate the circumstances of companies to which he was appointed, paid remuneration to himself which was not validly approved, and communicated inaccurately or unsatisfactorily with creditors, including as to the work done and anticipated to be charged.  The amount of remuneration alleged to have been paid to Mr Dunner in relation to these companies when not validly approved totals $613,737.90.  There is also alleged to be an additional amount of $48,500 which was paid to Mr Dunner as receiver and manager of Regen Polymers, which ASIC asserted Mr Dunner was not entitled to retain, as it was paid to him pursuant to a void charge. 

16. The allegations made by ASIC against Mr Dunner can be conveniently divided according to the companies (or groups thereof) to which they relate.  My analysis of these allegations is set out below under the following headings:

    1.Di Pietro group of companies;

    2.Stevenson-Treseder companies;

    3.Barra Trans Pty Ltd;

    4.Bartech International Pty Ltd;

    5.Red Earth Façade Systems Pty Ltd;

    6.Blacktop Profiling Pty Ltd; and

    7.R.A.M. Investments (Vic) Pty Ltd.

17. A number of issues arise for consideration in respect of each company or group of companies.  Before commencing this analysis, it is convenient to summarise the evidence primarily relied upon by each party in respect of these issues.

    THE EVIDENCE RELIED UPON

18. According to their closing submissions, the principal affidavits relied on by ASIC in respect of the relief sought at the hearing are:

    1.the affidavits of Mr Scott Robert Purdon (an officer of ASIC) sworn on 26 April 2012, 26 July 2012 and 16 January 2013;

    2.the affidavit of Mr Rajani Helaluddin sworn on 10 January 2013 (producing banking records in relation to the Di Pietro group of companies);

    3.in relation to the Stevenson–Treseder companies:

    3.1the affidavit of Mr (Bernard) Murray Treseder sworn on 17 January 2013;

    3.2the affidavit of Ms Meredith Treseder sworn on 16 January 2013;

    3.3the affidavit of Mr David Raj Vasudevan sworn on 14 January 2013;

    3.4the affidavit of Mr Andrew Charles Stevenson sworn on 12 January 2013; and

    4.affidavits of the following unsecured creditors of Blacktop:

    4.1the affidavit of Mr Kenneth Keith Kerr sworn on 16 January 2013; and

    4.2the affidavit of Mr John Anthony Patten sworn on 22 January 2013.

19. None of ASIC’s witnesses was cross-examined. 

20. Mr Dunner filed a statement of position dated 7 December 2012 in relation to the allegations made by ASIC in the proceeding.  Mr Dunner also swore five affidavits, on 13 July 2012, 26 July 2012, 14 September 2012, 21 November 2012 and 30 January 2013.  A number of character references were also filed with the Court on behalf of Mr Dunner. 

    ALLEGATIONS CONCERNING THE DI PIETRO GROUP OF COMPANIES

21. This section concerns the external administration of companies associated with Mr John Di Pietro (collectively referred to as the ‘Di Pietro group of companies’), being:

    (a)Regen Polymers Pty Ltd (deregistered) ACN 128 884 266 (‘Regen Polymers’);

    (b)Polymertechnik Pty Ltd (deregistered) ACN 122 433 550 (‘Poly’);

    (c)Polymertechnik Foam Pty Ltd (deregistered) ACN 122 433 587 (‘Poly Foam’);

    (d)Environmental Polymer Holdings Pty Ltd (deregistered) ACN 122 431 832 (‘EPH’); and

    (e)EPFE Pty Ltd (deregistered) ACN 122 433 694 (‘EPFE’).

22. The allegations made by ASIC in respect of the Di Pietro group of companies principally relate to Mr Dunner’s appointments to and conduct of the receiverships and liquidations of these companies, the investigations he was required to carry out and the remuneration he drew in these capacities.  The background facts relating to the external administrations of the Di Pietro group of companies as set out in ASIC’s closing submissions are admitted by Mr Dunner.  Where appropriate, I reproduce those submissions here. 

    Was Mr Dunner invalidly appointed as receiver and manager of Regen Polymers, EPFE and EPH, and did he fail to investigate the validity of charges granted?

23. In 2008, Mr Di Pietro was the sole director and secretary of each of Regen Polymers, EPFE and EPH when a charge was created by each company in his favour (described further below; and collectively referred to as ‘Charges’).  Less than six months after their creation, Mr Dunner was appointed by Mr Di Pietro pursuant to these Charges as receiver and manager of each company.  The relevant details relating to each company can be summarised as follows.

    (a)Mr Di Pietro was the sole director and secretary of Regen Polymers from 12 December 2007 to 12 June 2011.  A charge in favour of Mr Di Pietro was created (at the earliest) on 1 May 2008 (‘Regen Polymers Charge’).  Mr Dunner was appointed receiver and manager of Regen Polymers on 23 October 2008.  He was appointed liquidator of the company on 4 February 2009 (which appointment concluded on 2 June 2011).

    (b)Mr Di Pietro was the sole director and secretary of EPFE from 12 June 2008 to 25 March 2010.  A charge in favour of Mr Di Pietro was created (at the earliest) on 12 June 2008 (‘EPFE Charge’).  Mr Dunner was appointed receiver and manager of EPFE on 23 October 2008.

    (c)Mr Di Pietro was the sole director and secretary of EPH from 12 June 2008 to 25 March 2010.  A charge in favour of Mr Di Pietro was created (at the earliest) on 12 June 2008 (‘EPH Charge’).  Mr Dunner was appointed receiver and manager of EPH on 23 October 2008.

24. These facts, along with those set out in the affidavit of Mr Purdon dated 26 April 2012, are said to give rise to the following two general questions:

    1.Was Mr Dunner validly appointed as receiver and manager to each of these companies?

    2.Did Mr Dunner fail to investigate the validity of the Charges held by Mr Di Pietro in respect of each of these companies?

25. Section 267 of the Act (“Charges in favour of certain persons void in certain cases”) in substance provides that a charge will be void where it is created by a company in favour of a person who is an officer of that company, and within six months of the creation of the charge, the chargee purports to take a step in its enforcement without obtaining the leave of the court. I accept that any appointment of a receiver under such a charge would be invalid.

26. Despite originally characterising the failure to obtain the necessary court approval in respect of each of these Charges as an ‘oversight’ unintended to produce any undue preference for the chargee (namely, Mr Di Pietro), Mr Dunner no longer contests that the Charges (and his appointments pursuant to them) are invalid.  Accordingly, ASIC submitted that the Court should find that Mr Dunner’s appointments to those companies were invalid.  I am satisfied that it is appropriate to make these findings in the circumstances.

27. In respect of ASIC’s allegation that Mr Dunner failed to investigate the validity of the Charges granted to Mr Di Pietro, ASIC submitted that there is nothing in the documents produced by Mr Dunner that are before the Court to indicate that, in his capacity as receiver and manager of any of Regen Polymers, EPFE and EPH, he investigated adequately (or at all) whether any of the Regen Polymers Charge, the EPFE Charge or the EPH Charge were void.  Mr Dunner does not dispute this. 

28. In fact, it was further accepted by Mr Dunner during cross-examination that he also failed to investigate these matters adequately or at all after he became liquidator of Regen Polymers (whereas previously, Mr Dunner claimed that he had made “numerous inquiries” of Mr Di Pietro and the solicitor for Regen Polymers to verify the validity of the Regen Polymers Charge and other documents, despite no evidence of such inquiries or investigations having been provided).

29. Also during cross-examination, Mr Dunner conceded that he was not familiar with the terms or effect of s 267 at the time of his appointments to the Di Pietro group of companies.

30. The policy behind s 267 was described by Young J in Jesseron Holdings Pty Ltd ν Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455, in a passage at 457 of that judgment (part of which was read to Mr Dunner during cross-examination) which merits repeating:

    Section 267 of the Corporations Law was enacted because it was common experience that a company which was in financial trouble would give a charge to an insider shortly before winding up. The company went into liquidation and was left without sufficient assets to fund a liquidator to challenge the charge. As a result, it was perceived that in many instances, insiders such as directors were able to claim successfully that they were secured creditors and take priority over the company’s ordinary creditors. The solution that was found to this problem was to introduce a provision into the Corporations Law which turned the tables, presumed such charges to be invalid and left it to the insider to establish the charges’ validity.

31. In cross-examination Mr Dunner said that he did not share the ‘common experience’ referred to by Young J, and he did not accept (on the grounds of not having had that specific experience) that a director purporting to act under a charge “should ring alarm bells”. 

32. However, I note that in other external administrations, Mr Dunner did raise (but ultimately did not pursue) the validity of charges granted in favour of Mr Di Pietro by Poly and Poly Foam, both companies in respect of which Mr Dunner was appointed voluntary administrator and then liquidator.  In the Administrator’s Reports for Poly and Poly Foam, both dated 7 November 2008, Mr Dunner advised:

    Another issue relative to the debenture charge of Mr Di Pietro, is at the time of the registering of the charge, was the company solvent pursuant to section 267(3)(a) of the Corporations Act. Given the issues referred to later in this report, I believe that the solvency of the company could be said to be questionable and further investigation will be conducted to establish the extent of the claim under this charge.

33. Mr Dunner said that these reports were prepared by his staff and he reviewed them, but he did not read s 267.

34. In light of this evidence (and the agreement of Mr Dunner himself), I find that Mr Dunner failed to investigate adequately (or at all) whether any of the three Charges were void because of s 267 of the Act. These failures were serious breaches of his duty as a receiver and manager – both because of the importance of the duty, and, in respect of the breach concerning Regen Polymers, because of the following actions that Mr Dunner took as receiver and manager of that company:

    (a)Mr Dunner paid Mr Di Pietro (as secured creditor) in excess of $250,000 from the assets of Regen Polymers, being funds which would otherwise have been available to unsecured creditors;  and

    (b)Mr Dunner received $48,500 (exclusive of GST) in fees and expenses as receiver and manager of Regen Polymers.

35. I have already concluded that the Regen Polymers Charge is void by operation of s 267. In consequence of this, ASIC seeks orders that Mr Dunner be directed to repay $48,500 (plus GST), and that to facilitate that process, Regen Polymers be reinstated and an independent liquidator appointed. In the circumstances and having regard to the foregoing facts and conclusions, I am prepare to make those orders.

    Did Mr Dunner fail to pursue Mr Di Pietro for a RATA in respect of Regen Polymers and EPFE, and did he fail to report the lack of a RATA under the Act in each case?

36. As receiver and manager of both Regen Polymers and EPFE (and then liquidator of Regen Polymers), it was Mr Dunner’s obligation (arising from his general duties) to seek the RATAs which Mr Di Pietro was required to submit in the Regen Polymers and EPFE administrations as sole director of those companies. ASIC submitted that not only did Mr Dunner fail to pursue Mr Di Pietro for those documents, but he also failed to report the lack of RATAs to ASIC under ss 422 and 533 of the Act.

37. Mr Dunner does not dispute that apart from an initial formal request made by letter in October 2008, and the apparent receipt of a draft RATA from Mr Di Pietro’s son (which, on Mr Dunner’s own admission during cross-examination, had to be further completed or investigated), he did not pursue a RATA from Mr Di Pietro in respect of either Regen Polymers or EPFE.  None has been filed with ASIC or otherwise produced in respect of either company.

38. However, Mr Dunner does take issue with the allegation that he failed to report the absence of the RATAs to ASIC. ASIC submitted that Mr Dunner was required to report to ASIC, in reports prepared as a receiver under s 422 (“Reports by receiver or managing controller”) and as a liquidator under s 533 (“Reports by liquidator”), any failure by Mr Di Pietro to produce a RATA. Mr Dunner did not lodge any reports under s 422 in respect of his receivership of either Regen Polymers or EPFE. In the s 533 report dated 11 August 2009 that was filed in relation to the Regen Polymers liquidation, Mr Dunner did not advise that Mr Di Pietro had failed to submit a RATA. In his statement of position dated 7 December 2012, Mr Dunner contended that he was not required to do so, as there was no requirement or provision in the s 533 report for “ticking a box relating to” the non-submission of a RATA.

1. However, the online template for the s 533 report does provide for non-submission of a RATA to be reported in the course of reporting possible misconduct. To this end, there was evidence before me that Mr Dunner has previously reported a failure to lodge a RATA in this way, in respect of another administration. The reason that this box is not shown on the s 533 report prepared by Mr Dunner for Regen Polymers is that he answered “no” to the question “Are you reporting possible misconduct?”. If he had answered “yes” to this question, a box would have appeared in the online template, relating to whether a past or present officer of the company may have been guilty of a criminal offence under sections of the Act including s 475 (“Report as to company’s affairs to be submitted to liquidator”) – a provision which creates a strict liability offence for directors who fail to provide a RATA to a liquidator when required to do so. In cross-examination, after conceding that this was the case, Mr Dunner suggested that, as an unsigned draft RATA had in fact been received, “[i]nitially, when the form may have been completed, there may have been no requirement” to make a report to ASIC on the issue.

2. ASIC submitted that Mr Dunner’s failure to pursue and report the non-submission of a RATA in respect of EPFE and Regen Polymers is a further aspect of a serious failure on his part to investigate the affairs of the companies to which he was appointed.  I accept those submissions.  Even if I were to accept Mr Dunner’s evidence that at the time of filling out the relevant forms there was no requirement to report the absence of a RATA to ASIC, such an obligation certainly arose once the complete and final RATAs failed to materialise. 

   Did Mr Dunner fail to investigate the amounts secured by the Regen Polymers, EPFE and EPH Charges?

3. In summary, ASIC alleged that the information produced to Mr Dunner in relation to any amount actually owing under the Regen Polymers, EPFE and EPH Charges was conflicting or absent, and that he failed to investigate or confirm the amount of the debts.  Further, ASIC submitted that if there was in fact no amount owing under these Charges, Mr Dunner’s purported appointments were likely to have been invalid. 

4. For example, in relation to Regen Polymers, there is no evidence of an amount being loaned as asserted in the Deed of Loan concluded in May 2008 between Mr Di Pietro and Regen Polymers.  The Deed records that at the request of Regen Polymers, Mr Di Pietro advanced $6,000,000 to the company.  Receipt of this sum was expressly acknowledged by Regen Polymers in the Deed.  However, during cross-examination, Mr Dunner gave evidence that Mr Di Pietro’s solicitor (Mr Young) had told him that this figure on the loan agreement was a “typographical error”, and that the funds actually advanced were less than that.  Further, there were inconsistencies between this Deed, the Notice of Demand issued by Mr Di Pietro in October 2008 for repayment of $635,800 (being the amount in respect of which Regen Polymers was ostensibly indebted to him), Regen Polymers’ bank records, a balance sheet for Regen Polymers which recorded that in fact Mr Di Pietro owed money to the company (in the amount of $605,000), and ledgers which purported to say that amounts paid or transferred to Mr Di Pietro were to be taken as paid or transferred to another company.  

5. Mr Dunner broadly admitted these facts.  When taken through each of these inconsistencies in cross-examination, Mr Dunner typically acknowledged their existence, yet was often unable to explain them. Overall in respect of Regen Polymers, Mr Dunner’s oral evidence suggested that he simply accepted explanations given by the Di Pietros and others regarding the differences between loan account statements and other documents and the fact that repayments to Mr Di Pietro were in fact to be allocated to related companies, leaving the amount owed to Mr Di Pietro under the Regen Polymers Charge much higher.

6. ASIC submitted that in spite of these inconsistencies, and without any basis to be confident of the amount of any debt ostensibly owed to Mr Di Pietro by Regen Polymers, Mr Dunner made the first ‘dividend’ payment to Mr Di Pietro as secured creditor on 27 November 2008.  Further payments followed in the ensuing months.  As will be discussed further below, it was submitted that Mr Dunner did not undertake even the most basic investigation as to Regen Polymer’s relationship with “DS Trading”, a company which – bank records showed – had received large payments from Regen Polymers.  Mr Dunner asserted that he was unaware that it was a company associated with Mr Robert Di Pietro, who is Mr John Di Pietro’s son.  As receiver of Regen Polymers, those investigations were relevant to both the existence of the secured debt and the validity of Mr Dunner’s appointment.  I find that in breach of his obligations as a receiver of that company (and later as a liquidator), Mr Dunner failed to properly carry out such investigations.

7. In relation to EPFE, the only document that evidences or otherwise relates to a loan from Mr John Di Pietro to the company is a Notice of Demand for $148,516 plus interest, dated 9 October 2008.  However, the statement for EPFE’s bank account shows that on 8 October 2008 (the day before the Notice of Demand was issued), EPFE received a cash deposit of $148,516 (being the exact amount of the principal sum sought in the Notice of Demand), and paid $148,500 to another entity by cheque that same day.  Mr Dunner admitted these facts. 

8. Similarly, in relation to EPH, there is no information in respect of debts owed to Mr Di Pietro by that company other than a Notice of Demand issued on 9 October 2008 by Mr Di Pietro for $50,000 plus interest, and a listing of some payments made by Mr Di Pietro using his personal chequebook which include reference to EPH (and which therefore may have been made on behalf of that company).  At a very high level, however, I note that the sum of these payments that were apparently linked to EPH total more than $50,000.

9. Mr Dunner ultimately accepted that he did not make adequate enquiries in respect of these companies and the amounts secured by the Charges, and that he relied too heavily on what he was told by the Di Pietro family.  Mr Dunner asserted during the hearing before me that he had carried out some investigations, but these assertions were not supported by reference to any documents.  I cannot accept Mr Dunner’s suggestion that the investigations he undertook are evident from the company’s books and records, as any such books or records in support of his position were never specifically identified, or produced. 

10. I find that any inquiries carried out by Mr Dunner in his capacity as receiver and manager or liquidator of these companies (as the case may be) were not sufficient in light of the inconsistencies and ambiguities that were readily apparent on the face of the documents available to him at the relevant time.  For example, in respect of Regen Polymers, although he enquired of Mr Di Pietro’s solicitor and was told the amount in the Charge was a typographical error, Mr Dunner should have questioned Mr Di Pietro about the amounts alleged to be owing under the Charges, and whether the other transactions described above related to the alleged loans.  Even a rudimentary investigation is likely to have identified these anomalies and thus prevented Mr Dunner from paying amounts to Mr Di Pietro to which he was not entitled.  Mr Dunner ultimately conceded in cross-examination that it was “very unclear or murky” as to the exact amount of any secured debt owed to Mr Di Pietro.  Accordingly, Mr Dunner’s evidence that the solicitor’s explanation did not concern him or cause him to be sceptical was not, in all of the circumstances (including the inconsistencies already highlighted), satisfactory conduct on the part of a receiver or liquidator of Regen Polymers.  The same can be said in respect of Mr Dunner’s conduct as receiver and manager of EPFE and EPH.

11. Accordingly, I find that the failure of Mr Dunner to conduct an adequate investigation of the amount secured by each Charge constituted a serious breach of his duties in respect of each company.

    Should Mr Dunner have declined appointment as liquidator of Regen Polymers because of an actual or perceived conflict of interest?

12. Mr Dunner was appointed liquidator of Regen Polymers by the Supreme Court of Victoria in 2009, pursuant to an application made to the Court by Regen Polymers in November 2008 for its own winding up and the setting aside of a creditor’s statutory demand.  

13. An affidavit in support of this application was provided by Mr Di Pietro.  Mr Dunner provided a document entitled “Affidavit in support of application to set aside statutory demand and wind up Regen Polymers (ACN 128 884 266)”, which stated that he was “not aware of any conflict of interest which would make it improper for [him] to act as liquidator or Provisional Liquidator”. 

14. At the time of the application (17 November 2008), Mr Dunner had acted as receiver and manager of Regen Polymers (pursuant to his appointment by Mr Di Pietro) for approximately one month, and was also liquidator of Poly and Poly Foam, and receiver and manager of EPFE and EPH.  Among other things, at the relevant time Mr Dunner had information about potential debts between Regen Polymers and Poly and Poly Foam (in particular, that Regen Polymers was a substantial debtor of both Poly and Poly Foam).  To this end, in the Administrator’s Reports prepared by Mr Dunner in respect of both Poly and Poly Foam, he noted that:

    The relationship of Regen Polymers Pty Ltd and this company will be further investigated to establish the corporate obligations for each company.

15. Neither Mr Di Pietro’s affidavit in support, nor Mr Dunner’s consent to act, refers to his ongoing appointment to these other Di Pietro companies at the relevant time.

16. ASIC submitted that Mr Dunner was obliged in each instance to consider whether there were preference payments between those companies, or whether the loans or transactions involved were otherwise voidable.  It was further submitted that the information available to Mr Dunner at the relevant time showed a real or potential divergence of interests of those companies.  In particular, ASIC contended that during the time that Mr Dunner was receiver and manager of Regen Polymers, he conducted himself in a manner at the direction of the secured creditor (namely, Mr Di Pietro) that may in the ordinary course have required investigation by a liquidator.  ASIC further submitted that by the appointment of Mr Dunner as liquidator, there was no independent investigation of the validity of his actions as receiver, including his decision to pay more than $250,000 to Mr Di Pietro.

17. Mr Dunner disputed these contentions on the grounds that he believed and still believes that:

    (a)there was no conflict of interest, the companies were all part of a “group” and the accounting records were intermingled; and

    (b)his involvement with the companies was or ought to have been disclosed to the Court by his legal representative at the hearing of the winding up application.

18. During cross-examination, Mr Dunner initially said there was no discussion of “why it might not be a good idea” for him to be appointed as liquidator of Regen Polymers with the lawyer charged with conducting the application on behalf of the Di Pietro interests (Mr Harris of Impex Lawyers).  He later said that he did discuss with Mr Harris the relationship between the companies and the prospect of ensuring the Court was informed of these matters, but could not recall if Mr Harris confirmed that this had been done.  However, I note that insofar as Mr Dunner said that at the relevant time he addressed the issue of whether it was appropriate for him to be appointed as liquidator of Regen Polymers, in his evidence he focused on the need for the Court to be expressly informed of his role as a receiver and manager of that company – not his ongoing roles in respect of other companies in the group. 

19. A liquidator appointed by the Court must be independent, and be seen to be independent (see Re National Safety Council of Australia, Victorian Division (1989) 15 ACLR 355; [1990] VR 29 at 360). As noted by the Full Court of the Supreme Court of Victoria in that case at 360-361, it is of the greatest importance that there should be no possibility of criticism attaching to one of the Court’s own officers on the ground of a conflict of interest and duty. It is also important to avoid the substantial injustice that may be done to creditors of a company if certain relationships with other entities (such as debtors, or related companies) cannot, are not or do not appear to be fairly, promptly and independently investigated. I accept Mr Dunner’s evidence that this instance represents the only time in his career that he was appointed by a court as liquidator after already having been appointed as receiver and manager. But accepting the appointment as liquidator of Regen Polymers placed Mr Dunner in a position of actual or potential conflict of duty or interest. Notwithstanding any lack of familiarity with this exact situation, as an experienced liquidator, Mr Dunner ought to have been aware of the potential for conflict in the circumstances, a potential made significantly more real in these circumstances by the factors already discussed. To this end, he ought not to have consented to the appointment – or, at the very least, he ought to have personally taken steps to ensure that this potential conflict was disclosed to the Court to enable an informed appointment to be made. I do not accept that it was sufficient for him to simply rely upon the lawyer for the Di Pietro interests to do so, if that is in fact what occurred.

    Did Mr Dunner fail to comply with the Regulations and 2008 IPA Code in respect of the meeting of creditors of Regen Polymers on 21 May 2009 and, if so, is the resolution purportedly passed at that meeting invalid?

20. The minutes of the Regen Polymers creditors’ meeting held on 21 May 2009 state that the creditors present approved liquidator’s remuneration of $32,200 (exclusive of GST).  However, this resolution was passed with proxies which ASIC contended were defective.

21. The meeting was attended only by Mr Steven Marks, the sole director of ‘SME’s [sic] R Us Pty Ltd’ (‘SRU’) (which, I understand, is a firm of commercial business consultants). Mr Dunner gave evidence that Mr Marks and his company were a source of work for him for approximately five years, and that it was common, when Mr Marks wanted Mr Dunner to perform work for him or accept an appointment, for Mr Marks to make an upfront payment to Mr Dunner of $5,000 out of his own pocket.  Further, it appears from the correspondence exhibited to the affidavit of Mr Purdon of 26 April 2012 that Mr Marks was in regular contact with Mr Dunner at the time that Mr Dunner was receiver and manager (and then subsequently liquidator) of Regen Polymers, seeking payment of funds to entities including Mr Di Pietro, Mr Dunner and himself.

22. It was said that Mr Marks attended the meeting on 21 May 2009 in his capacity as proxy for both SRU and Mr Di Pietro, and voted accordingly. However, ASIC submitted that the documentary record (being the relevant proofs of debt or claim and the proxies) does not demonstrate compliance with the Regulations, in the following ways:

    (a)Among other things, reg 5.6.23 provides that a person is not entitled to vote as a creditor at a meeting of creditors unless their debt claim has been admitted by the liquidator or administrator (wholly or in part), or they have lodged particulars or a formal proof of their debt or claim (whichever is required) with the appropriate person.  Regulation 5.6.24 provides that to be able to vote, a secured creditor must provide particular information in their proof of debt or claim, and prescribes both how that voting can occur, and its consequences in respect of security held by those creditors. 

    ASIC contended that there is no document containing the required particulars for either Mr Di Pietro or SRU, nor record of any such documents in the minutes of meeting.  Nor was a blank proof of debt form sent to creditors along with the notice of meeting.  Further, a handwritten list of creditors of Regen Polymers (which was a document produced by Mr Dunner) does not include SRU.

    (b)Regulation 5.6.28 provides that a proxy is not entitled to vote unless the instrument of proxy (completed in accordance with reg 5.6.29) has been lodged with the appropriate person beforehand.  In substance, s 21.5 of the 2008 IPA Code provides that a practitioner must not accept a form of proxy that is incorrectly completed in a way that the practitioner considers renders it invalid or of doubtful validity.  Practitioners must ensure that all legal requirements as to the form of the proxy and instructions as to its completion are complied with, and returned proxies should be carefully checked to ensure that they are valid (s 21.5.1).  The only proxy documents produced by Mr Dunner in respect of this meeting are two proxies which are undated and incomplete except for a signature.  During cross-examination, Mr Dunner identified one of those signatures as being that of Mr Marks.

    (c)Regulation 5.6.16 provides in effect that a meeting of creditors must not act in approval of remuneration unless a quorum of at least one or two people entitled to vote (depending on how many people in total are entitled to vote) is present in person or by proxy. ASIC submitted that the shortcomings in relation to Mr Di Pietro’s attendance means there was no quorum.

23. Mr Dunner contended that he was presented with “appropriate proxy forms” prior to the commencement of the meeting (or that proxies were completed at the meeting and provided to the chair), but could not explain why incomplete forms were on file, and the allegedly completed forms were missing.  He also contended that supporting informal proofs of debt were tabled at the meeting and admitted, but could not explain the absence of any copies of these documents. 

24. I note that although Mr Dunner gave evidence of having asked Mr Marks whether he recalled providing completed proxies in respect of this meeting (to which the answer was apparently in the affirmative), no affidavit from Mr Marks was tendered in support of Mr Dunner’s position.  Nor, it seemed, did Mr Dunner undertake a thorough investigation of the matter with staff members who assisted him with this liquidation.

25. Putting to one side any confusion regarding the identity of the creditors on whose behalf Mr Marks may have attended the 21 May 2009 creditors’ meeting, I find that the voting power exercised by him pursuant to proxy was not properly exercised.  Despite Mr Dunner’s expressed position, I am satisfied that the regulations and sections of the 2008 IPA Code referred to above were not complied with. 

26. Accordingly, I find that Mr Dunner failed to properly discharge his duties as liquidator in the circumstances, and the resolution passed at the meeting as to his remuneration was invalid. 

    Did Mr Dunner draw liquidator’s remuneration in excess of the approval given by creditors of Regen Polymers?

27. As previously noted, the amount of liquidator’s remuneration purportedly approved by creditors on 21 May 2009 was $32,200 (exclusive of GST).  However, the total amount of remuneration actually drawn by Mr Dunner in respect of that liquidation was $62,195.21 (exclusive of GST).  There is no record of approval of further remuneration being granted in the Regen Polymers liquidation (nor any record of a further creditors’ meeting at which such approval may have been sought). 

28. Mr Dunner agreed during cross-examination that he was aware at all relevant times that he was obliged to have prior approval for his fees.  He gave evidence that his practice had a process in place to record the existence of fee approvals (and the amount thereof) on the files to which they related, through the use of hand-written notes.  However, this process “broke down” on occasion, in that when bills were drawn, they were matched against the work in progress totals for the file, rather than against the ledgers recording the creditor funding approvals that had been obtained.  Mr Dunner stated that subsequent reconciliations would “sometimes” find that fees had been drawn in excess of the amount approved by creditors.

1. I consider that a system operating on the basis described by Mr Dunner is inherently ineffective and unsatisfactory in ensuring that a liquidator satisfies their obligations regarding payment of remuneration.  That in itself would constitute a failure to observe the standards expected of liquidators.  But in my view, Mr Dunner’s explanation of his practices went further, and displayed a serious and systemic disregard for creditor funding approvals.  His evidence suggested instead a focus on the cash flow requirements of his practice and whether there was cash available in the company accounts to be applied to those requirements.  This is demonstrated by the following exchange with Senior Counsel for ASIC that took place during the cross-examination of Mr Dunner:

   MR WOODWARD SC: So you would have a process, would you, where you would sit down with these ledgers or something like it and say, “Well, this is getting a bit – the work in progress is getting a bit high.  We had better render some invoices.”  Is that ­ ­ ­?

   MR DUNNER:  –– No.  The question comes is that the work in progress can get very high, but if there’s no asset or fee to realise the fees against that, you can’t draw.  So once there are issues resolved on that, we can then seek to draw that – yes.  The system has failed in some instances whereby fees may have been drawn because of the excessive values on the work in progress.

   MR WOODWARD SC: Do you recall occasions, or was it part of your practice when you directed a staff member to draw an invoice – did you tell them how much to draw it for – because it’s clearly not the full amount owing?

   MR DUNNER–– No.  I did, yes.

   HIS HONOUR:   But how would you work out which amount?  Was it just how much you needed for your running your practice, or ­ ­ ­?

   MR DUNNER: –– Well, basically – yes.

   HIS HONOUR: And cash flow needs?

   MR DUNNER: –– Pay the wages, pay the rent.

   HIS HONOUR: Yes?

   MR DUNNER: –– Those sort of issues ­ ­ ­

   MR WOODWARD SC:   Did you ­ ­ ­?

   MR DUNNER: –– Pay the advertising bills.

   MR WOODWARD SC: So you would just dip into various administrations that had money at that time?  Is that – I’m just trying to get a sense ­ ­ ­?

   MR DUNNER: ––- No.  Well, you can’t dip into ones that don’t have money, so they’ve got to have funds available to draw against.

   MR WOODWARD SC: And was there part of that process – I don’t want to put a proposition to you, Mr Dunner, because this is important, but was there a part of a process that – in the – as part of what you’ve described, of sorting of checking, “Gee, we need some cash flow, so let’s send an invoice for 10,000 to Rayunit this month,” or whatever it is, where you said to your staff, “Just check we’ve got approval for that,” or anything of that kind?  Did you personally check what the approval level was?

   MR DUNNER: –– I failed to follow through on some occasions.

2. Mr Dunner said he believed he sought approval from the creditors of Regen Polymers for his remuneration, but could not explain the absence of documentary record of said approval. No further detail of such approval was provided by Mr Dunner. If such approval was in fact sought and obtained at a further creditors’ meeting, I note that the absence of records is contrary to Mr Dunner’s obligation under s 531 of the Act to maintain proper records of his administration. However, I am satisfied in the circumstances that no such approval was sought or obtained.

3. Pursuant to my previous finding that the approval sought from creditors on 21 May 2009 was not validly obtained, I find that by drawing remuneration without appropriate creditor approval and not repaying that excess, Mr Dunner has failed to comply with the Act, the 2008 IPA Code, the 2011 IPA Code and APES 330. Mr Dunner said he was not aware of the provisions of the Codes requiring the repayment of unapproved remuneration (including the requirement in the 2011 IPA Code that remuneration be redrawn only after making full disclosure), despite attending continuing professional development sessions when the 2011 IPA Code was introduced. However, ignorance of the law cannot absolve Mr Dunner of his responsibility to comply. In the circumstances, I consider that it is appropriate to make orders for the repayment by Mr Dunner of the unapproved remuneration drawn in the Regen Polymers liquidation, in the amount of $62,195.21 (excluding GST).

   Did Mr Dunner as liquidator adequately investigate certain significant matters relating to Regen Polymers, and report to creditors and ASIC in relation to those matters?

4. ASIC contends that Mr Dunner failed in his duty as liquidator to investigate certain significant matters.

5. I have already concluded that Mr Dunner failed to adequately investigate the validity of the Regen Polymers, EPFE and EPH Charges.  However, there are a number of other matters relating to his time as liquidator of Regen Polymers that require comment.

6. As previously noted, there was a disconformity between the records of Regen Polymers, Poly and Poly Foam as to whether Regen Polymers owed or was owed a debt.  I have already noted that in his reports to creditors of Poly and Poly Foam, Mr Dunner stated that their relationship with Regen Polymers would be “further investigated to establish the corporate obligations for each company”.  However, there is no documentary record to indicate that Mr Dunner in fact investigated these issues, either adequately or at all.  Mr Dunner no longer disputes this.  In the circumstances, I am satisfied that Mr Dunner failed to investigate these matters as he was required to do in his professional capacity as a liquidator.

7. Similarly, the bank statement for Regen Polymers disclosed numerous large withdrawals for and transactions with Mr Di Pietro in the weeks leading up to Mr Dunner’s appointment as receiver and manager.  Mr Dunner does not dispute that there is no documentation of any investigation undertaken by him to determine if any of these payments were recoverable in the liquidation. 

8. ASIC submitted that a particularly troubling example of Mr Dunner’s failure to act independently and to investigate significant matters relates to the payments made by Regen Polymers to DS Trading which, in the five weeks before Mr Dunner’s appointment as receiver and manager, totalled several hundred thousand dollars.  Mr Dunner gave evidence that it was not until he was expressly told during cross-examination at the hearing before me that he knew that the company “DS Trading” was owned by Mr Robert Di Pietro.  He stated that he never asked who or what that company was.  ASIC further submitted that it defies belief that, in all his dealings with the Di Pietros in the course of purporting to regularise the accounting records for large transactions to related companies, Mr Dunner did not learn that the only other recipient of substantial sums (apart from Mr Di Pietro himself) was related through Mr Robert Di Pietro. 

9. To this end, in addition to general payments made directly by Regen Polymers to DS Trading and Mr Di Pietro, ASIC emphasised the following transactions:

   (a)On 19 September 2008, Mr Di Pietro paid Regen Polymers a net amount of $205,000, and Regen Polymers paid $244,000 to DS Trading.  On that same day, Mr Di Pietro received $244,000 from his son, Mr Robert Di Pietro. 

   Mr Dunner ultimately accepted that ascertaining that DS Trading was associated with Mr Robert Di Pietro would have made him “very suspicious”, and he could then have pursued investigations into what happened to the funds paid to DS Trading.  During cross-examination Mr Dunner attempted to downplay the relative size of the transactions and the ease with which he could have obtained access to relevant banking information (for example, the bank account statements of DS Trading), but ultimately accepted that the payments to DS Trading were the only payments going to a company that he “knew nothing about”. 

   (b)On 2 October 2008, Mr Di Pietro paid Regen Polymers a net amount of $155,800.  On that same day, Regen Polymers paid $220,800 to DS Trading, and Mr Di Pietro received $220,800 from his son.

   (c)On 7 October 2008, Mr Di Pietro paid Regen Polymers a net amount of $5,000, and Regen Polymers paid $123,000 to Trifon and Maria Gouvas (‘Gouvas’), whom Mr Dunner gave evidence were “a disputed party with the Di Pietros”.  He did not offer any further detail.  Also on that day, Mr Di Pietro received $120,000 from the Gouvas account.

10. ASIC submitted that these transactions had the possible effect of inflating the amount due to Mr Di Pietro by Regen Polymers, and returning funds to him without them being recorded as loan repayments.  It was submitted that, therefore, Mr Dunner’s failure to investigate the propriety of these transactions was serious, especially in view of Mr Dunner’s decision to pay more than $250,000 to Mr Di Pietro under the Regen Polymers Charge.

11. In the circumstances, I consider that it is unlikely that Mr Dunner did not know of the connection between DS Trading and the Di Pietros.  However, I am not prepared to positively find that he did have such knowledge and was therefore knowingly involved in what appear to have been suspicious transactions, notwithstanding what ASIC characterised as an evasiveness in giving evidence about whether the payments made to DS Trading warranted investigation. 

12. Nonetheless, I find that Mr Dunner’s failure to ask anyone about DS Trading (for example, about the identity of its controllers or what it did) when it received so many significant payments from Regen Polymers in the weeks prior to his appointment as receiver and manager was a breach of Mr Dunner’s duty as a liquidator to investigate the affairs of that company.  Indeed, in cross-examination, Mr Dunner ultimately acknowledged that further inquiries should have been made and investigations carried out.  This was an appropriate concession to make.  It appears that the standard investigations one would expect a liquidator to carry out in the context of a liquidation where the bank statements of a company show large payments being made to possibly related parties were not conducted.  The implications of this failure to investigate were serious – the transactions were substantial, and undertaken only very shortly before Mr Dunner’s appointment as receiver of Regen Polymers.  The transactions were also relevant to the amount (if any) that should have been paid to Mr Di Pietro pursuant to the Regen Polymers Charge.  Accordingly, I find that Mr Dunner failed to exercise the critical judgment required of a liquidator in respect of his appointments to Regen Polymers.

    Did Mr Dunner investigate adequately or at all the sale of assets by EPFE and ensure that the proceeds of sale were received?

13. After the Notice of Demand was issued to EPFE by Mr Di Pietro on 9 October 2008, on 14 October 2008 the company entered into an agreement to sell certain assets to Mr Robert Di Pietro for $170,000 plus GST.  This occurred shortly before Mr Dunner was appointed as receiver and manager of EPFE on 23 October 2008.  In addition to payment of the sale price, the sale contract indicates that in consideration for a reduction of the amount owed by EPFE to Mr Di Pietro pursuant to the EPFE Charge, Mr Robert Di Pietro agreed to pay a deposit of $17,000 directly to his father.  However, there is no document recording the receipt of the outstanding proceeds of sale by EPFE, or confirming that the sale was ever completed.  Further, the final Form 524 (“Presentation of Accounts and Statement”) report lodged by Mr Dunner with ASIC on 27 October 2009 in respect of EPFE states only that $610 was paid to Mr Dunner for the period of his receivership for remuneration and expenses.  The Form 524 report contains no indication that the proceeds of sale pursuant to the contract concluded with Mr Robert Di Pietro were ever received. 

14. Mr Dunner contends that he investigated and ascertained that prior to his appointment as receiver and manager, the monies due from Mr Robert Di Pietro under the sale contract had been offset against monies owed by EPFE to Mr Di Pietro under the EPFE Charge.  This was said to explain why the Form 524 report filed by him at the end of his receivership did not record the receipt of any such funds.  However, Mr Dunner has not identified any records of either that investigation, or the set off he described. 

15. In any event, the Notice of Demand issued in respect of the EPFE Charge was for $168,516, inclusive of interest purportedly owing as at the date of the demand.  It was put to Mr Dunner in cross-examination that offsetting the sale price of $170,000 against the EPFE Charge would have exceeded the amount demanded by Mr Di Pietro under that Charge, thereby removing any basis for Mr Dunner to be appointed as receiver.  Mr Dunner accepted this, and said that on the basis of this realisation, he subsequently retired.  However, he could not explain why, having come to this realisation in or about October 2008, he waited until October 2009 to resign from this appointment.

16. However, ASIC submitted that Mr Dunner’s failure to investigate in respect of EPFE went further than the proceeds of the sale due to be paid by Mr Robert Di Pietro.  Specifically, ASIC pointed to a number of transactions that occurred on 8 October 2008, shortly before Mr Dunner was appointed.  On that date, Mr Di Pietro paid $148,516 to EPFE, EPFE paid $148,500 to Gouvas, and ASIC submitted that Mr Di Pietro received $136,500 from Gouvas.  ASIC submitted that these transactions had the possible effect of inflating the amount due to Mr Di Pietro from EPFE, by returning funds to him without them being recorded as loan repayments. 

17. For the foregoing reasons, I accept that Mr Dunner’s failure to investigate the propriety of the transactions relating to the affairs of EPFE were serious.  At a minimum, they directly related to the validity of his appointment (which I have already found was not adequately investigated by him).  Further, the propriety of the payments made shortly before Mr Dunner’s appointment as receiver and manager had a direct bearing on whether subsequent amounts were required to be paid to the Di Pietros, and what was to be made of the apparently outstanding proceeds of sale from Mr Robert Di Pietro.  Mr Dunner failed to adequately discharge his responsibilities as a receiver and manager of EPFE.

    ALLEGATIONS IN RESPECT OF THE STEVENSON-TRESEDER COMPANIES

18. This section concerns companies associated with Mr Craig Stevenson and Ms Meredith Treseder (collectively referred to as the ‘Stevenson–Treseder companies’), being:

    (a)Rayunit Pty Ltd (in liquidation) ACN 062 998 378 (‘Rayunit’); and

    (b)Emberford Pty Ltd (in liquidation) ACN 007 394 881 (‘Emberford’).

19. Mr Stevenson and Ms Treseder are both directors of these companies. 

20. The background facts relating to the Stevenson-Treseder companies as comprehensively set out in the affidavit of Mr Purdon of 26 April 2012 are broadly admitted by Mr Dunner, with one exception – he disputes the completeness of the record of communications between himself and Ms Meredith Treseder and Mr David Vasudevan as set out in the affidavit of Mr Purdon of 26 April 2012.  I will return to this issue in due course.

21. The principal issues raised for consideration in respect of these liquidations relate to Mr Dunner’s remuneration, and his communication with company creditors and ASIC.

    Did Mr Dunner invoice for time not spent on the Rayunit liquidation?

22. In respect of the Rayunit liquidation, Mr Dunner drew and paid an invoice dated 2 March 2011 which included remuneration of $9,086.91 (exclusive of GST).  This is reflected in the Form 524 report lodged with ASIC by Mr Dunner on or around 30 March 2011.  However, this payment was not recorded on the Rayunit Account Ledger, which purports to show a running balance of the work in progress (‘WIP’) on a half-monthly basis.  By 13 May 2011, if the amount paid pursuant to the 2 March 2011 invoice had been deducted, the WIP balance would have been $5,752.32.  In fact, at this time it was $7,839.23.  Also at or around this time, Mr Dunner drew and paid two further invoices totalling $12,000.  Accordingly, when the 2 March 2011 invoice is taken into account, the invoices subsequently drawn and paid exceeded the WIP recorded for this liquidation at that time.

23. Mr Dunner admitted these facts.  But in cross-examination he sought to characterise the fact of invoicing for time not spent working on the Rayunit liquidation as “a small deficiency in the account”, attributable to the 2 March 2011 invoice not being included in the Rayunit Account Ledger. 

24. ASIC did not allege that Mr Dunner knew that the WIP was overstated.  Nor do I consider that, without more, such a conclusion is open to me on the evidence.  It suffices to say that in the circumstances, I am satisfied that Mr Dunner has received (and not repaid) $9,086.91 in respect of the Rayunit liquidation to which he was not entitled, and which should be repaid.

    Were Mr Dunner’s reports to creditors and ASIC accurate as to the value of work done and anticipated to be charged in the Rayunit liquidation?

25. The evidence before me indicates a systematic pattern of conduct on the part of Mr Dunner, whereby reports to both creditors and ASIC were inaccurate (sometimes grossly inaccurate) in their estimates of the work completed and anticipated to be charged in respect of the Rayunit liquidation.

26. Mr Dunner’s report to the creditors of Rayunit dated 23 June 2011 was inaccurate as to the amount of work already performed.  When compared with WIP records, Mr Dunner significantly understated the amount and value of work undertaken in the period up to 31 March 2010, and overstated (albeit to a lesser extent) the amount and value of work carried out in the subsequent period up to 31 May 2011. 

27. For example, the report dated 23 June 2011 stated that a total of 175 hours had been spent on the liquidation in the period up to 23 March 2010 (representing a total of $50,255, exclusive of GST).  However, the entries for the corresponding time period in the ‘Current Rayunit WIP Report’ record that as at 31 March 2010, Mr Dunner and his staff had spent 762.7 hours on the liquidation (representing a total of $136,870.60, excluding GST). 

28. Similarly, that report stated that a total of 214 hours had been spent on the liquidation in the period since 1 April 2010 (representing a total amount of remuneration of $74,580 (exclusive of GST)).  However, for the corresponding period, the Current Rayunit WIP Report stated that Mr Dunner and his staff had spent 151.9 hours on the liquidation, representing a total amount of $41,571.80 (excluding GST).

29. Mr Dunner acknowledged during cross-examination that where the report referred to these hours as being a “[s]ummary of work to be undertaken” (emphasis added) by him and his staff for the relevant time periods, this was incorrect.  The hours are in fact a retrospective record of time actually spent on the liquidation.

30. It further became apparent during cross-examination that the report had been insufficiently adapted from a template such that it retained mention of various irrelevant tasks (such as liquidator’s examinations, which were not held in respect of the Rayunit liquidation) in the list of work to be performed, and misrepresented the work which had been or would be done.   

31. A similar issue was that Mr Dunner’s estimates of his future fees to be incurred in the Rayunit liquidation in the Form 524 reports lodged with ASIC are inconsistent with both the contemporaneous position shown in his own time costing records, and the fees subsequently drawn.  For example, in the Form 524 report dated 26 March 2010, Mr Dunner estimated that $23,041.50 of further fees would be incurred in the liquidation.  However, the Rayunit Account Ledger stated that WIP in the amount of $119,414.35 was outstanding as at 15 March 2010, and by the time the next Form 524 report (dated 7 October 2010) was lodged, Mr Dunner had in fact drawn remuneration of $83,004.35 (inclusive of GST).

1. ASIC contended that the notice of the 9 July 2012 meeting failed to identify the proposed resolution, although it was disclosed in the report to creditors (but without stating that remuneration had already been paid to Mr Dunner; a fact that Mr Dunner stated in cross-examination was orally disclosed at the meeting).  The description of work undertaken in the liquidation featured in this report was again substantially identical to the earlier report issued in respect of the 11 April 2011 meeting.

2. Notwithstanding the resolution for ratification (which I find was affected by significant shortcomings in the disclosures it purported to contain), ASIC submitted that Mr Dunner committed serious breaches of his obligations by taking excess payment of $67,847.58 in remuneration without first obtaining creditor approval, or checking that such approval had been obtained.  I accept those submissions.  I further find that Mr Dunner was in breach of his duty in not repaying the amount of remuneration received in excess of creditor approval upon discovery of that fact.  Accordingly, it is appropriate to order that he repay the amount taken in excess of approval.  Mr Dunner should then be required to justify to the Court his entitlement to any remuneration he would seek to recoup.

   Did Mr Dunner fail to call an annual meeting of creditors for Blacktop or report to ASIC?

3. As already noted, having been provided with a copy of the relevant materials since the hearing in February 2013, ASIC now accepts that an annual meeting of creditors was held on 9 July 2012, which was within time under the Act.

4. However, each of ASIC and two other creditors did not receive notice of this meeting, and there is no record of the meeting being advertised in accordance with reg 5.6.14A of the Regulations. Mr Dunner maintained that the relevant materials were mailed, but I accept that it is significant that at least three creditors did not receive notice of the meeting.

5. Accordingly, ASIC submitted that insufficient care was taken by Mr Dunner to ensure that all creditors received notice of the meeting.  I accept this submission.

   ALLEGATIONS IN RESPECT OF R.A.M. INVESTMENTS (VIC) PTY LTD

6. Mr Dunner was appointed as administrator of R.A.M. Investments (Vic) Pty Ltd (‘RAM’) on 6 May 2008.  This appointment ceased on 2 June 2008, and Mr Dunner was appointed liquidator of RAM by resolution of creditors on 3 June 2008.

7. The background facts relating to RAM as comprehensively set out in the affidavit of Mr Purdon of 26 July 2012 are largely admitted by Mr Dunner, except that he does not accept the correctness of the calculation relied upon by ASIC in respect of the remuneration he received in respect of this liquidation by mid June 2012 (about which more will be said shortly). 

   Did Mr Dunner draw liquidator’s remuneration in excess of the amount approved by creditors?

8. The amount of liquidator’s remuneration approved by creditors of RAM on 3 June 2008 was $52,000 (exclusive of GST).  However, Mr Dunner’s Form 524 report dated 18 June 2012 stated that as at 3 June 2012, he had been paid $101,990.90 (inclusive of GST).  After ASIC’s evidence was filed in this proceeding, on 31 August 2012, Mr Dunner provided an annual report to creditors of RAM which stated that for that period of time, he had in fact been paid remuneration of $76,231.70 (excluding GST).

9. Mr Dunner contended that the figure stated in the Form 524 report of 18 June 2012 was a typographical error, but did not definitively state what the correct figure is, or provide documentary records in support of a revised estimate.

10. ASIC submitted that even if the lower figure in the recently filed annual report is correct (which, it is contended, is not substantiated by Mr Dunner’s evidence), that amount exceeds the approved remuneration by $24,231.70.  In cross-examination, Mr Dunner ultimately accepted this position.

11. On the basis of the foregoing, I find that Mr Dunner committed a serious breach of his obligations in taking payment for remuneration without obtaining creditor approval (or checking that such approval had been obtained), and failing to repay said excess remuneration upon discovery of the error.  I further find that he has received and not repaid at least $24,231.70 (exclusive of GST) which was not authorised.  Accordingly, it is appropriate to order that he repay this amount.  Mr Dunner should then be required to justify to the Court his entitlement to any remuneration he would seek to recoup.

    RELIEF SOUGHT

12. The precise terms of the orders proposed in ASIC’s closing submissions filed in this proceeding in March 2013 were substantially as follows:

    THE COURT DECLARES THAT:

    1 There are grounds for cancellation of the registration of Mr Dunner as an official liquidator by the Australian Securities and Investments Commission (ASIC) pursuant to s 1291(1) of the Act.

    2        Mr Dunner is not a fit and proper person to remain registered as a liquidator.

    THE COURT ORDERS THAT:

    3 Within seven days, pursuant to section 1290(1) of the Act, the defendant request ASIC to cancel his registration as a liquidator and an official liquidator by lodging with ASIC a properly completed ‘Form 905A’, together with the prescribed fee.

    4        The defendant be prohibited for a period of [xx] years from applying [without leave of the Court] to ASIC to become registered as a liquidator.

    5        For the purpose of enabling the order made in paragraph 7 below, the company Regen Polymers Pty Ltd (deregistered) ACN 128 884 266 be reinstated, and [insert name] be appointed as liquidator of the company.

    6        The defendant pay to the liquidator of Regen Polymers within 28 days the sum of $48,500 (plus GST).

    7        The defendant pay into court within 28 days the sum of $613,737.90 (plus GST) in respect of the defendant’s remuneration for each of the administrations and liquidations set out in the schedule to these orders.

    8 The defendant within 30 days of complying with paragraph 7 above, but in any event no later than [90 days] from the date of these orders, may make any application to the Court to determine and fix the appropriate remuneration of the defendant in each such administration or liquidation in the same manner as if it were exercising its powers under s 425(1) or s 473(3)(b)(ii) of the Act, and for payment of such amount out of the sum paid into court pursuant to paragraph 7 above.

    9        Any amount not the subject of any application made under paragraph 8 above be paid:

    (a)if the respective company remains in liquidation, to the liquidator of the company; and

    (b)otherwise, to a registered liquidator appointed by the Court as receiver of those funds.

    10       The receiver appointed as provided in paragraph 9(b) above:

    (a)will have powers to hold in a fund and administer the amounts received (Fund), but with no powers or responsibility with respect to the liquidation of the companies in respect of which the Fund is held;

    (b)will make reasonable inquiries to identify any creditors of the companies in respect of which the Fund is held, and call for proofs of debts;

    (c)subject to subparagraph (d) below, will distribute the amount held in the Fund for each respective company (after deduction of fees and expenses as provided below) pro rata to each ascertained creditor of that company whose proof is accepted, subject to the priorities set out in s 556 of the Act;

    (d)will have discretion not to make payment if the amount of such payment is $50.00 or less; and

    (e)before distribution, may deduct from the Fund fees and expenses incurred (subject to any amount fixed by the Court), to be borne ratably by each company for which there are monies in the Fund, in the proportion that the amount of the monies for each company bears to the total amount in the Fund.

    11       The defendant pay ASIC’s costs of the proceeding.

13. Shortly before the hearing in February 2013, Mr Dunner sought to request that ASIC cancel his registration as a liquidator and an official liquidator under s 1290.  However, it became apparent during the hearing that Mr Dunner had not submitted the correct form to initiate that process: rather than submitting a liquidator resignation form, it appears that Mr Dunner in fact filed a notice advising that the practice name “Andrew Dunner & Associates” had ceased as at 8 February 2013.  Subsequent to this, Mr Dunner submitted the correct resignation form to ASIC, as a result of which ASIC indicated that it would no longer press proposed order 3.  Further, ASIC submitted that the wording of order 1 should be changed from “there are grounds for cancellation” to “the matters which were the subject of this inquiry provided grounds”. 

14. A number of issues in respect of the appropriate orders to make require further consideration, including the prohibition from practice proposed to be imposed on Mr Dunner, the way in which the orders regarding remuneration will operate, and the fate of the administrations being managed by Mr Dunner until earlier this year.  I will consider each in turn.  Other matters may arise upon publication of these reasons, which may need to be addressed before final orders are made by the Court.

    Prohibition from practice

15. In relation to Mr Dunner’s registration, ASIC seeks orders that he be prohibited from practice for an appropriate period of time, submitted to be between five and seven years.  At the hearing, Mr Dunner indicated his preparedness to consent to an order not to practice for a period not exceeding three years.  Accordingly, the principal point for the Court’s determination is the duration of the prohibition order to be imposed.

16. In determining the appropriate duration of such a prohibition order, there are numerous relevant considerations. 

17. ASIC submitted that on the basis of the matters set out in these reasons for judgment, Mr Dunner failed to carry out and perform adequately and properly his duties as a liquidator, an administrator and a receiver.  It is also submitted that, as a result of those failures, Mr Dunner is not a fit and proper person to be registered. 

18. Withdrawing a liquidator’s registration operates directly to protect the public from the work of that person.  It also operates generally by deterring other liquidators from acting in a similar fashion.

19. ASIC submitted – and I accept – that there is a compelling public interest in the maintenance of a system which recognises that registration as a liquidator is a privilege, the continuance of which is conditional upon diligent performance of its attendant duties.  It is also important to demonstrate to the public that there exists a regulatory regime applicable to liquidators which is effective in maintaining high standards. 

    Duration of prohibition

20. ASIC submitted that, having regard to the considerations discussed above, the Court should indicate the level of its disapproval of Mr Dunner’s conduct by nominating a number of years during which Mr Dunner is effectively prohibited from practice.  As I have indicated, ASIC nominated a period of prohibition in the range of five to seven years.  By contrast, Mr Dunner stated that he would consent to orders preventing him from practising for three years, and that the period nominated by ASIC was excessive.  I understand that a number of character references filed with the Court on behalf of Mr Dunner in April 2013 are intended to support his submissions on this issue.

21. ASIC submitted that the evidence establishes a basis for a substantial period of prohibition, having regard to the following conduct and circumstances in particular:

    (a)serious deficiencies in investigation, particularly in relation to the Di Pietro group of companies where there was a failure to undertake even the most cursory of investigations;

    (b)Mr Dunner was unfamiliar with important and fundamental provisions of the Act and the Codes of the professional associations of which he is a member, and which relevantly governed his responsibilities;

    (c)Mr Dunner displayed a disregard for the significance of whether or when creditors had approved his remuneration, and took remuneration when dictated by his own self-interest;

    (d)Mr Dunner demonstrated significant lack of care and attention in the preparation of numerous reports to creditors and in preparing for, convening and holding meetings of creditors (a failing which ASIC submitted was not merely a few isolated examples occurring over a long period of time, but rather, a systemic failure in his practice);

    (e)at its lowest, the evidence indicates a systematic failure of systems and procedures within Mr Dunner’s practice; at its highest, it indicates a gross disregard for the duties and responsibilities of a liquidator, administrator and receiver;

    (f)Mr Dunner was typically not frank and forthcoming in his explanations by affidavit or in the witness box, preferring in many instances to avoid or deflect the focus of the allegations made against him, which in ASIC’s submission is contrary to what should be expected from a liquidator, administrator and receiver and officer of the court;

    (g)the amount of unapproved remuneration is substantial and Mr Dunner has not made any attempt to repay any funds to date;

    (h)Mr Dunner’s conduct has adversely impacted the interests of creditors and was contrary to his fiduciary duties; and

    (i)there has been no contrition or genuine acknowledgement by Mr Dunner of his failures.

22. Accordingly, ASIC submitted, it is appropriate that a substantial period of prohibition be imposed to reflect the seriousness of Mr Dunner’s conduct, both by reference to the need to protect the public from further conduct by Mr Dunner, and general deterrence purposes.

23. On the subject of the mechanism by which such prohibition should be effected in this case, ASIC submitted that in Edge (2007) 211 FLR 137; [2007] VSC 170, Dodds-Streeton J made a kind of declaratory order that ASIC had grounds to cancel Mr Edge’s registration pursuant to s 1291(1) of the Act. The cancellation was then effected by ASIC pursuant to that declaration.

24. In opposition to the course proposed by ASIC, Mr Dunner submitted that as he filed a resignation form with ASIC on 13 February 2013, it is not necessary for the Court to either make a declaration or order cancelling Mr Dunner’s registration as an official liquidator, or find that he is not a fit and proper person to remain as a registered liquidator.  Rather, he will simply consent to an order that he will not practice for a period not exceeding three years. 

25. By contrast, ASIC submitted that it is still appropriate and desirable that the Court make a finding (and declaration) similar to that made in Edge (2007) 211 FLR 137; [2007] VSC 170, to the effect that there are grounds for cancellation of the registration of Mr Dunner as an official liquidator by ASIC pursuant to s 1291(1). It is ASIC’s submission that there are also grounds for the Court to find that Mr Dunner is not a fit and proper person to remain as a registered liquidator. ASIC submitted that these declarations are appropriate to mark the Court’s disapproval of Mr Dunner’s conduct, and as a foundation for the other orders.

26. As a basic point, to maintain the cancellation of Mr Dunner’s registration for the period of time to be determined by the Court, the appropriate mechanism is for the Court to make orders prohibiting Mr Dunner from applying to renew his registration for that period of time.  Any application for registration by a prospective liquidator must be made to ASIC in the ordinary course.  The main question (apart from the duration of this prohibition, to which I will turn shortly) is whether the order should provide that Mr Dunner may apply to ASIC for registration prior to the expiry of the order’s duration if he first obtains the leave of the Court. 

27. In the circumstances, I consider that it is appropriate to make orders substantially in the form sought by ASIC, prohibiting Mr Dunner from applying to ASIC for registration as a liquidator for a fixed period of years without first obtaining leave of the Court.  In my view, despite the objections of Mr Dunner, this is the preferred form of order to make, as it gives Mr Dunner the option of applying to ASIC before the expiry of the period nominated if he has first obtained leave of the Court.  I appreciate this may add to the normal process in terms of cost and time, but the seriousness of the conduct of Mr Dunner indicates to me that this is an appropriate approach.

28. I do not consider that the prohibition orders should also be accompanied by a declaration to the effect that there are grounds for the cancellation of Mr Dunner’s registration or he is not a relevant fit and proper person.  Mr Dunner’s actions have obviated the need for an order effecting such cancellation.  The orders of the Court and these reasons will indicate the seriousness of the breaches of obligations and duties committed by Mr Dunner as a liquidator, receiver and administrator. 

29. I have considered the submissions of Mr Dunner to the effect that apart from this proceeding, he has had an “unblemished” record as a liquidator, insolvency practitioner and accountant.  He further submitted that in this proceeding, he has co-operated with ASIC, complied with their requests and demands, made a number of concessions and admissions in his evidence and elected not to cross examine any of ASIC’s witnesses (or call his own witnesses), all of which greatly reduced the length and cost of the proceeding.  It was further said that Mr Dunner’s recognition of the seriousness of the allegations against him was reflected in his decision to voluntarily cease practising as a liquidator prior to the hearing in February 2013 (although to this end, I note and accept ASIC’s submission that the sudden and unexpected manner in which Mr Dunner resigned as liquidator from all of his external administrations on 8 February 2013 did not reflect a responsible approach to managing his position).  Overall, Mr Dunner sought to emphasise that the “failures” that are the subject of this proceeding can largely be attributed to error or poor administration.  

30. These submissions may be correct.  However, even if one accepts the characterisation of Mr Dunner’s conduct as merely being a function of “error or poor administration”, it is clearly not conduct befitting a liquidator and an officer of the Court.  For that reason, it could be considered inherently unsatisfactory.  However, such a characterisation does not adequately convey the gravity of the matters before me.  The conduct in question indicates a systemic failure of administration and internal protocols, as well as (in a number of instances) extremely poor professional judgment.  In this way, Mr Dunner has failed to satisfy the high standards of conduct required of his offices. 

31. I have considered Mr Dunner’s submission that, as there is no evidence of any complaint from any creditor in any of the relevant external administrations, there is no evidence that his conduct has in fact adversely affected creditors.  For the purpose of addressing this submission, I note the comments of Dodds-Streeton J in Edge (2007) 211 FLR 137; [2007] VSC 170 at 177 [189] are apposite here:

    It is specious to contend that there were no complaints about the conduct of the liquidations or administrations, or that the breaches caused no actual loss or prejudice. … Second, in the absence of meaningful reports and accounts which would permit scrutiny of Mr Edge’s conduct, the existence and extent of any dissatisfaction, loss or prejudice cannot be ascertained. The contraventions not only cumulatively constitute a pattern of wide-scale, long-term non-compliance, but also have serious implications for each individual company involved...

    Marks J’s reference to:

    the cloistered nature of the work which a liquidator performs and the unique hold on vital information to which he succeeds [so that] if he becomes minded to keep the information to himself, he is exceedingly well placed …

    is apposite in this context.

1. I also reject Mr Dunner’s attempt to argue that the period of prohibition sought by ASIC in this proceeding is excessive having regard to the nature of the matters alleged against him, and to the outcome of ASIC’s recent investigation into the conduct of another liquidator.  Each case turns on its own facts.  

2. In the circumstances, I consider that the period of time of prohibition imposed on Mr Dunner should extend until 11 February 2018, being a period of five years from the commencement of the hearing.

3. I note that if it were not for the substantial co-operation given by Mr Dunner during this proceeding, and his ultimate acceptance of his own shortcomings, I would have made the period of time of prohibition substantially longer. 

   Remuneration

   Remuneration as liquidator

4. In relation to Regen Polymers, Rayunit, Emberford, Barra Trans, Bartech, Red Earth, Blacktop and RAM, ASIC seeks orders for payment into Court of the remuneration drawn by Mr Dunner without appropriate approval or authorisation, followed by assessment by the Court of appropriate remuneration to be paid to Mr Dunner in respect of each external administration (if ultimately applied for by him). 

5. The process I will order be undertaken involves an order that Mr Dunner repay a determined amount in respect of the external administrations in question, with leave to apply to the Court for justification of an entitlement to recoup remuneration where appropriate.  ASIC submitted that in order to cost-effectively cater for such an application, rather than having the funds paid separately to each of the relevant companies (potentially with different replacement liquidators), the proposed process contemplates payment into a fund administered by a receiver appointed by the Court.  The receiver can then remit any surplus funds (namely, those not justified to be repaid to Mr Dunner upon any such application being made by him to the Court within the time prescribed by the orders) to the relevant company.  I accept this to be the appropriate process to be undertaken.

6. ASIC made no submissions as to whether work was in fact done, or performed to an extent which supports the fees that have been charged by Mr Dunner in these external administrations.  I accept that regardless of whether I am satisfied that the work was in fact done by Mr Dunner in respect of the external administrations in question, the funds ought to be repaid as they were not drawn in the appropriate manner.  For the foregoing reasons, I am satisfied that this conclusion can be drawn in respect of each of the impugned external administrations, either because no approval for remuneration was obtained, or because the approval obtained was invalid. 

7. Mr Dunner objects to the orders that require him to justify the amounts in respect of which he may seek reimbursement, on the basis that there is no evidence either that he has not performed the work charged for, or that he has charged excessively.  He further submitted that the orders proposed will effectively require him to prepare an itemised account for each administration that is the subject of this proceeding, which will cause him to incur substantial cost. 

8. It may be that a fully itemised account is not necessary – it will depend upon the basis of remuneration Mr Dunner seeks.  In any event, I consider that this process is necessary in the circumstances.  The wording of the relevant provisions of the Codes leaves me in no doubt that such action is required.  A similar process was adopted by Dodds-Streeton J in Edge (2007) 211 FLR 137; [2007] VSC 170, and I note and accept her Honour’s comments at 229 [624]-[628] regarding the Court’s extensive powers to take such action as it thinks fit. Finally, I do not accept that any costs incurred by Mr Dunner in obtaining the Court’s approval for remuneration in this manner should be paid by ASIC. Mr Dunner is responsible for the failure to properly draw the remuneration in question in the first instance, and thus he must bear the cost of putting things right.

9. Finally, as previously noted, in relation to the companies which have been deregistered, I am prepared to make orders (as necessary) for their reinstatement as sought by ASIC, to enable the orders in relation to the remuneration to be repaid to have effect.

   Remuneration as receiver of Regen Polymers

10. In relation to the remuneration paid to Mr Dunner as receiver and manager appointed under the Regen Polymers Charge, ASIC submitted that the funds should be repaid to the company without provision for Mr Dunner to seek approval.  I have already found (and Mr Dunner admits) that the Charge pursuant to which Mr Dunner purported to exercise powers as receiver and manager and take remuneration from the company’s assets was void.  In the circumstances, ASIC submitted that there is no justification for Mr Dunner receiving or retaining the payment, and he must repay it to the company.  I accept this submission, and note that I also make ancillary orders for the reinstatement of Regen Polymers, and appointment of a liquidator, to enable the company to receive the repayment.

    Current administrations

11. In relation to each of the external administrations that are the subject of the inquiry and which remained current at the time of the February 2013 hearing, Mr Dunner has already resigned as liquidator and replacement liquidators have been appointed. 

12. In addition, shortly before the hearing in February 2013, apparently without notice to ASIC, Mr Dunner resigned from his position as liquidator or controller of nearly 190 administrations then under his responsibility.  In consequence of Mr Dunner’s mass resignation, it was necessary for ASIC to arrange for replacement liquidators or controllers to be appointed to each company.  ASIC made the relevant application before me in April 2013, and I consequently made orders appointing replacement liquidators and controllers in the manner proposed.

13. Subsequently, a number of the appointments made by ASIC in this manner had to be vacated and replacements appointed, for reasons including conflicts of interest.  I made orders to this effect on 6 June 2013. 

    Costs

14. The final issue is that of costs.  ASIC submitted that as the Court has conducted the inquiry into Mr Dunner’s conduct as originally sought by ASIC, it is entitled to its costs following the event.  Mr Dunner resists this conclusion on the basis that he was not given the opportunity to avoid the costs associated with this proceeding, as ASIC did not respond to or accept his offers to cooperate.  I see no basis not to follow the ordinary rule that costs follow the event, and will make an order that Mr Dunner pay the costs of the proceeding.

    CONCLUSION

15. I will order that the parties confer, and file a minute of order reflecting these reasons by 4:00pm on 20 September 2013.  If agreement cannot be reached, then each party file and serve a separate minute of order by 4:00pm on 20 September 2013.

I certify that the preceding two hundred and forty-six (246) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

Associate:

Dated:       30 August 2013